Hurricane Helene is likely to be a minimal-to-zero loss event for the ILS market, sources have told this publication.
The storm hit Florida’s Big Bend as a Category 4 hurricane overnight on Thursday, then weakened as it moved north into Georgia and the Carolinas.
Cat bonds potentially exposed to the event include Florida Citizens’ Everglades Re bonds and the Federal Emergency Management Agency (Fema)/National Flood Insurance Program (NFIP) Floodsmart Re deals.
Sources indicated on Friday that they did not anticipate losses to the bonds.
On the private ILS side, some firms do write low-attaching Florida reinsurance layers, however, these are typically done at very high rates on line and at higher attachments in the past couple of years, meaning a low insured loss event is still not a significant impact.
One source indicated that they had marked as at-risk certain positions with Florida west coast exposures.
In an investor update, Twelve Capital said: “Initial estimates suggest losses below the attachment points of per-occurrence bonds. Whilst we do not expect any direct impact from this event on our positions, aggregate erosion will be further increased across applicable bonds.”
The Everglades Re bonds provide aggregate coverage on an indemnity basis, meaning that Helene has the potential to cause some erosion.
Everglades Re II 2022-1 Class A provides $200mn of aggregate cover on an indemnity basis, attaching at $4.6bn.
The 2024 Everglades Re II series, Class A notes ($450mn), B notes ($425mn) and C notes ($225mn), also provide aggregate, indemnity-based coverage, though they attach higher up, at $13.3bn, $11.3bn and $9.8bn respectively.
However, Citizens’ dollar exposure across residential and commercial lines, multi-peril and wind, is less than 1% per each line of business in Florida’s 12 Big Bend and inland counties, according to data compiled by this publication.
Flooding impact has been significant
On NFIP exposure, broker Guy Carpenter said it expected Helene to deliver one of the program’s top 10 largest losses on record.
A Fema statement on Saturday said more than 800 of its assessors were on the ground assisting with response efforts and surveying damage in Alabama, Florida, Georgia, North Carolina, South Carolina and Tennessee.
The NFIP has higher take-up in the Tampa Bay region, compared to Georgia, South Carolina an North Carolina, Guy Carpenter said.
The broker noted that river gauges in the Southern Appalachian river had reached near-record highs on Friday morning, and that the event had set multiple coastal storm surge records across the Gulf of Florida.
One source told Insurance Insider ILS that the riskiest of the NFIP deals, Floodsmart Re 2022-1 Class C, could show downward pricing pressure, but that the likelihood of the deal attaching was “very small”.
The 2022-1 Class C notes provide indemnity, per-occurrence coverage, attaching at $6bn of losses.
Seven of NFIP’s Floodsmart Re bonds were marked down significantly on the secondary market in the days immediately after Hurricane Ian in September/October 2022.
Of these, the series 2022-1 Class A, Class B and Class C notes had largely recovered as of July 2024, with the loss incurred much smaller than the secondary market pricing initially indicated.
The other four bonds matured with no loss.
Helene looks set to be a broadly retained insured event and will serve as a reminder to reinsurers of the advantages of hard-won cat programme restructures.
Although there are already signs that reinsurers of North American cat risk are willing to concede to clients on price, there is no suggestion that reinsurers will entertain reductions in retention levels – and Helene is a clear display of the impact of mid-sized US wind events.
Spread into other states
Helene made landfall at Category 4 strength late on Friday in Florida’s Big Bend region, delivering high winds and torrential rain. Although Tallahassee – a key concern for (re)insurers – escaped a direct hit, the metropolitan area of the state capital did see some damage.
During Friday and through the weekend, Helene – by then a tropical storm – brought devastation to Georgia before dumping record amounts of rain on Tennessee and the Carolinas.
Associated Press reported landslides and flooding forcing the closure of roads and isolating western North Carolina. Across the state more broadly, 400 roads remained closed by Sunday, according to the BBC.
Across Florida, the Carolinas, Georgia and Virginia, 2.5 million people were without power on Sunday, according to PowerOutage.US.
Insured losses: Estimates begin
Over the weekend, AM Best produced an early insured loss estimate for Helene of $5bn – although it is important to note that at this stage all estimates are subject to change.
AM Best said it expects Helene’s losses to exceed those caused by Hurricane Idalia last year, which amounted to between $2.5bn and $4bn.
“Based on the loss estimates from Idalia, the strength of Helene, and potential inland damage, AM Best expects insured losses from Helene of around $5bn,” the agency said.
Crucially, AM Best highlighted the significant reach of Helene’s impacts beyond the storm’s centre, compared to Idalia’s 150 miles. For that reason, meaningful damage is expected inland in Georgia, Tennessee, Kentucky and the Carolinas.
Helene’s impact on Tallahassee and Atlanta, Georgia will also result in higher losses, AM Best said, noting that around 55% of Tallahassee has tree cover, 37% of which is not wind-resistant.
It added, however, that Helene’s ultimate loss quantum is heavily dependent on the determination of which perils – flood, wind or storm-surge – caused the damage, and the extent of BI losses caused by power outages, repair costs and demand surge.
Moody’s, meanwhile, published an overall economic property damage loss estimate for Helene of $15bn-$26bn.
As this publication highlighted on Friday, the ‘wildcard’ elements of Helene’s potential impact – direct, hurricane-strength hits on Tallahassee or Atlanta – did not materialise, leading many sources to adjust their expectations down to the mid-single-digit billions.
Tort reform in Florida has also quelled fears of major loss-creep resulting from the Florida portion of the loss.
Reinsurance impact
Sources indicated last week that an insured industry loss level of $10bn would be required to make Helene a reinsurance event – but even at that level, recent restructures to reinsurance programmes during the hard market mean that Helene will be mainly a retained loss.
Given its size and impact relative to Idalia, Helene is the first significant North Atlantic landfalling hurricane to arrive after both extensive remedial work by the Lloyd’s market and a withdrawal, by worldwide reinsurers, from frequency coverage.
Lloyd’s syndicates’ reduced concentration of North American property cat business – particularly the pruning of the worst-performing business – has been a significant factor in its improved results since the Corporation’s remedial programme began in 2018.
More broadly, the global reinsurance market went through a period of intense hardening over 2023 that resulted in a wholesale reset of property cat contracts.
While repricing has been a significant part of that, the restructuring of reinsurance programmes to lift retentions and tighten event definitions and hours clauses to shift reinsurance protection away from low single-digit-billion losses, effectively switching reinsurance away from frequency protection and towards severity coverage.
As sister publication Insurance Insider reported following the start of the 1 January renewal season, North American property cat pricing is already on the cusp of a controlled descent as reinsurers, now in growth-mode, line up to write well-priced business.
This has led to a battle for signings on the upper layers of property programmes at renewals since 1 January 2023.
Reinsurers are still telegraphing a refusal to negotiate on retention levels, however, unwilling to step back towards the mid-sized US cat events that crushed their results in the 2017-2022 period.
Helene serves as a reminder of the ‘new normal’ of frequent, medium-sized North American wind and flood losses. The storm’s likely low impact on reinsurers illustrates the necessity of recent market hardening – and will strengthen their resolve around retention levels during the current negotiation period.